EU supports U.S. complaint on China chip VAT

The European Union (EU) has offered to support U.S. efforts to persuade China to scrap tax breaks for domestic computer chip makers, a European Commission spokesperson said Wednesday.

The Chinese government waives, for local producers, a large chunk of the 17 per cent value added tax (VAT) charged on chips sold in the country. The U.S. has charged that this puts foreign companies such as Intel Corp. at a competitive disadvantage. Earlier this month the U.S. filed a complaint at the World Trade Organization (WTO).

The EU’s main chip maker, Germany’s Infineon Technologies AG, benefits from the Chinese tax break because it is based in China. Commission spokesprson Arancha Gonzalez said the EU is offering to be a third party to the American complaint to the WTO “we have a systemic interest in that it may be chips today but tomorrow apply to other products where we do have an interest.”

Of more concern to the EU is China’s practice of limiting exports of coking coal in order to be able to offer it to China’s steel industry at favorable prices.

China’s chip market is the world’s third largest and generally estimated to be worth nearly US$20 billion per year in sales. The VAT break for local producers is an attempt by the Chinese government to wean the country off imported chips, which account for more than four-fifths of the market.

China’s biggest domestic chip maker is Semiconductor Manufacturing International Corp.